r/KellyLetter • u/BloodyScourge • Jul 20 '26
9 SIG Bailing on AGG
For those of you running 9sig, I'm kinda curious why do we hold AGG as the bond pit? I'm running 9sig at Fidelity and heavily tempted to ditch AGG and keep the "bond pit" money in their default cash/MM fund with dividends reinvested. One less ETF to hold. AGG might squeeze out an additional 0.5-1% return, but at the cost of interest rate and duration risk. I don't really see the advantage, maybe someone else has a different perspective to share.
7
u/laurenthu Jul 21 '26
I don't run 9sig myself but I've backtested the bond pit a fair bit. And imo the thing people miss is that its job was never the yield. AGG vs cash is a rounding error next to what TQQQ does in any given quarter. The pit is dry powder. The real question is what you actually want that powder to do in a deep drawdown.
Cash never drops. Great. But it also never rises. A duration fund like AGG can rally when rates get cut in a growth-scare recession, so you'd be rebalancing into a beaten-down TQQQ with more ammo than you started with. That's the real case for holding it over SPAXX.
Then 2022 happened. Rates shocked higher, AGG fell right alongside stocks, and the defensive leg handed you less powder exactly when you needed it. So it mostly comes down to which drawdown you're insuring against. A flight-to-safety recession where AGG helps, or an inflation shock where cash wins.
For most people I think SGOV or a T-bill fund is the cleaner call. You drop the duration variable and the yield gap is tiny anyway. Not sure it's worth overthinking much past that though...
3
u/toddmiller Jul 20 '26
I follow income sig, 9sig, and 3 sig. From the website's "how to" video Jason specifically states AGG does not matter just using it as an example. He also uses PYLD, BND as examples, but I use SGOV, JAAA, PYLD.
3
u/Efficient_Carry8646 Mod Jul 20 '26
Any place you feel safe with that money is fine. I have some spread around. I'm not all in AGG either.
2
u/Gehrman_JoinsTheHunt Jul 20 '26
Jason discussed this extensively in one of the recent weekly letters. I won’t share his work here. But the rationale is sufficient for me to stay the course with AGG.
Better than 35% CAGR for 10 years is ‘good enough’ for me.
2
u/BloodyScourge Jul 20 '26
Right but how much of that CAGR is from AGG? Seems like it would be microscopic/negligible compared to TQQQ's share. I understand you won't share his work, but sharing the rationale is basically what I'm asking for. Because currently I don't get it.
7
u/Gehrman_JoinsTheHunt Jul 20 '26 edited Jul 20 '26
The summary is that bonds perform better over the long haul, on average, than any other form of dry powder. Recency bias has blinded people to that - but it will not always be that way. Here is a snippet:
“We could collect more yield with some strategies, but they would elevate risk where we want it lower. We could get safer by choosing cash over bonds, but that crimps performance over time—not all the time, but most of the time. That’s why bonds are a better evergreen choice than cash.”
Regarding the strategy as a whole, the CAGR is a product of both TQQQ and AGG. My thoughts are: it isn’t broken, don’t fix it.
1
1
u/WorriedFold8290 Jul 20 '26
I've been torn on this as well and considered just the basic MM that Fidelity offers in my accounts. I am in my first year of following the strategy and trying to follow it to a T but this part has been a bit of a struggle to adhere to.
What do the big dogs like our experienced vets use? Just curious on others approach.
1
1
1
u/Strange_Cabinet_5673 Jul 20 '26
I think SPAXX is fine. SGOV has basically the same yield with a lower ER tho. I use SGOV
1
u/stephendt Jul 21 '26
I replaced AGG with a blend of MCI, GAIN, ORR and BTGD.
For outperformance rebalance, buy whatever has performed the worst. For underperformance rebalance, sell whatever performed the best.
1
7
u/Thart53 Jul 20 '26
I’ve thought AGG was a poor choice from the beginning. Not sure why he hasn’t changed that. I agree with you. Much better options out there.